Unocal Alaska capital budget to be around $80 million this year

Company continues pace of last year with similar budget — up dramatically from $35 million capital budget in 2000

Kristen Nelson

PNA Editor-in-Chief

Unocal Alaska’s 2002 capital budget of some $80 million continues the company’s 2001 activity level, up steeply from 2000’s $35 million capital budget.

“Last year, in 2001, we spent right at $80 million, round figure, capital budget,” Chuck Pierce, Unocal’s Alaska vice president, told PNA Jan. 17.

“And I would anticipate that our budget for 2002 will remain at approximately that same level.” Pierce said spending could be higher if projects are successful.

“We’re not cutting — we’re maintaining. We’ve got to put that in context, too, because the year before we were at $35 million,” he said.

The company’s major focus for 2002 will be south Kenai gas, including the Kenai Kachemak pipeline.

Lower peninsula focus

Pierce told RDC there are “significant deliverability shortages” on the horizon for Cook Inlet gas, especially in the winter of 2003-2004. Gas exploration and pipeline construction are timed to meet that window, with the Kenai-Kachemak pipeline expected to go into operation in November 2003.

Both engineering and regulatory work are under way for the gas pipeline, Pierce told PNA. The reserves are there, he said, and the project is being defined in more detail. If things stay on schedule, he said, the project should be sanctioned in the third quarter of this year.

Mid-range supply for Southcentral

Success in this program could be “part of the solution to the near-term and mid-term gas supply issues facing the Southcentral market,” he said: Kenai and other Cook Inlet success could provide 10 to 15 years of supply security for the Anchorage area.

“There is gas exploration potential remaining in the Cook Inlet. We believe the south Kenai is a good place to start,” Pierce said.

He told the RDC that 500 billion cubic feet to 1 trillion cubic feet “would be a very good complement to move us out into the 2010-2015 range… at which point either some really upside success in the Cook Inlet exploration or North Slope gas could take over the requirements” of Southcentral gas supply.

Unocal and Marathon are currently active in the Ninilchik area, Pierce told the RDC, and exploration success in the Anchor Point area could support a second phase of pipeline development (phase one will run from Ninilchik to the Kenai gas field).

“Next year Unocal plans to drill wells in the northern area and in the southern area. And altogether between Marathon and Unocal, we’ll be drilling five to nine exploration and appraisal wells, depending on success,” Pierce told the RDC in November.

The companies released results at the Grassim Oskolkoff well Jan. 22 (see story this page). Three other wells at Ninilchik are in various stages of completing and testing and an additional well is planned in the unit.

Oil drilling continues

In July, Unocal said the K-13 well at the King Salmon platform in McArthur River field (Trading Bay unit) was producing at 7,100 barrels per day, the highest rate of any well in Cook Inlet history. In January, the well was still producing at 5,900 bpd. That well confirmed a structure in the Hemlock formation on the northern flank of the field that Unocal said could contain more than 35 million barrels of oil in place.

Pierce said Unocal is drilling the follow-up well in the same fault block and expects to see some results from that well in February. Forest Oil Corp. is Unocal’s partner at McArthur River.

Unocal has other oil prospects and programs in Cook Inlet, and Pierce said “provided that the oil price stays up, I see us doing more work there throughout the year.”

Unocal has two drilling rigs working offshore Cook Inlet, where the company operates 10 platforms, “and depending on oil prices and circumstances our goal would be to keep two running the entire year,” he said. The company will look at that program around mid-year, he said, and decide if it wants to keep the two rigs running offshore.

Another rig is drilling Unocal prospects onshore.

Preliminary North Slope work

On the exploration side, Unocal has 162,000 North Slope exploration acres, acquired in state lease sales in 2000 and primarily in 2001, when Unocal acquired 155,520 acres.

Pierce said Unocal sees a lot of potential in that acreage: “It’s a new growth area for us. We hadn’t picked up new acreage on the slope in several years.”

Unocal won’t do any exploration drilling on its North Slope exploration acreage this year, he said, but will be studying geologic and project feasibility.

Unocal funding beluga research

2002 contributions from Unocal’s foundation and local funds will total some $200,000, said Unocal Alaska spokeswoman Roxanne Sinz.

Matching grant for whale research

Unocal Alaska has made a five-year commitment of $25,000 a year, and that total of $125,000 is being matched, she said.

The first year will be baseline studies on the beluga whales in Cook Inlet. Unocal will be working with the National Marine Fisheries Service “to see what kind of studies have been done, first of all, and see what we can do to supplement those studies,” Sinz said.

Money for the first year will go toward finding out what kind of studies are currently out there, she said.

The project goal, said Pierce, “is to establish an appropriate methodology for measuring, in baseline and ongoing measurement, the population of the beluga in Cook Inlet.”

Unocal wanted to do something proactive, Pierce said, and establishing a “solid scientific foundation in cooperation with the National Marine Fisheries Service” will help better understand beluga whales in the inlet.